Making a Material Difference
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BREEDON GROUP MAKING A MATERIAL Annual Report 2019 Annual Report DIFFERENCE BREEDON GROUP ANNUAL REPORT 2019 www.breedongroup.com IN THIS REPORT From our quarries and STRATEGIC REPORT plants come the essential 2019 highlights 02 construction materials that Our strategy 04 Our business at a glance 06 build our homes, workplaces Statement from the Chair 08 and leisure spaces. Group Chief Executive’s review 12 Our business model 16 From roads to airport runways, Our markets 18 Our strategy: progress and priorities 20 from houses to warehouses, Our Key Performance Indicators 22 shops to offices, walkways, Managing our risks and opportunities 24 Group Finance Director’s review 28 cycle paths, tennis courts and Business reviews 33 golf courses, you’ll find our Resources and relationships 44 products transforming the lives Health and safety 46 Climate change and energy 48 of people at work and at play in Social responsibility 50 cities, towns and villages across Environment and nature 52 Circular economy 53 Great Britain and Ireland. Our stakeholders 54 From the ground up, we are GOVERNANCE Board of Directors 58 MAKING A Corporate Governance statement 60 Audit Committee report 66 Directors’ Remuneration report 69 MATERIAL Nomination Committee report 77 Directors’ Report 79 DIFFERENCE Statement of Directors’ Responsibilities 82 FINANCIAL STATEMENTS Independent Auditor’s report 84 Consolidated Income Statement 90 Consolidated Statement of 91 Comprehensive Income Consolidated Statement of Financial Position 92 Consolidated Statement of Changes in Equity 93 Consolidated Statement of Cash Flows 94 Notes to the Financial Statements 95 ADDITIONAL INFORMATION Shareholder information 135 Advisers and company information 138 Glossary 139 Please read this report in conjunction with the FOR MORE INFORMATION glossary on pages 139 and 140. Front cover: Restoration work underway at our former Black Cat quarry in Bedfordshire, where we largely completed mineral extraction in 2019 www.breedongroup.com ABOUT US STRATEGIC REPORT STRATEGIC WHO WE ARE A leading vertically-integrated construction materials group in Great Britain and Ireland. Our core outputs are aggregates and cement, from which we produce a range of value-added products including asphalt, ready-mixed concrete and mortar, together with the delivery of specialist contracting services including highway surfacing and maintenance. OUR STRATEGY We are an ambitious company in our tenth year of consistent growth. As we look ahead, we have set out in this report a clear guide to our medium-term objectives and strategy. We aim to be a leading international construction materials group creating superior value for all our stakeholders. We have detailed the six pillars of our strategy on pages 4 and 5. Whitemountain’s Temple Quarry near Belfast BREEDONGROUP.COM 01 STRATEGIC REPORT 2019 HIGHLIGHTS REVENUE UNDERLYING EBIT* £929.6m £116.6m 2018: £862.7m +8% 2018: £103.5m +13% UNDERLYING EBIT MARGIN* PROFIT BEFORE TAX 12.5% £94.6m 2018: 12.0% +0.5ppt 2018: £79.9m +18% UNDERLYING BASIC EARNINGS PER SHARE* BASIC EARNINGS PER SHARE 5.08p 4.64p 2018: 4.70p +8% 2018: 4.01p +16% NET DEBT * Underlying results are stated before acquisition-related expenses, redundancy * Underlyingand reorganisation results are costs, stated property before items, acquisition-related amortisation ofexpenses, acquisition redundancy andintangibles reorganisation and related costs, tax property items. items, amortisation of acquisition intangiblesReferences and to an related underlying tax items. profit References measure throughout to an underlying this Annual profit Report measure are £290.3m throughoutdefined on this Annualbasis, and Report a reconciliation are defined to onthe this most basis. directly related statutory 2018: £310.7m measure is provided on pages 132 to 134. Read about our progress against the six pillars of our strategy on pages 4 and 5. 02 BREEDON GROUP ANNUAL REPORT 2019 STRATEGIC REPORT STRATEGIC We delivered a strong result, reflecting an excellent performance in challenging conditions All three of our Divisions produced improved results Strong cash flow resulted in closing post IFRS 16 Above: James Quinn, skipper of Whitemountain’s sand dredger on Leverage of 1.6 Lough Neagh in Northern Ireland We largely completed the integration of Lagan The acquisition of Roadway strengthened our position in North Wales Our Capital Concrete joint venture gave us critical mass in the London Above: Rita Simpson, who keeps the pre-heater tower at our Hope readymix market cement works flowing We negotiated the acquisition of a substantial portfolio of assets from CEMEX in the UK We committed to the GCCA’s Sustainability Charter We intend to declare a maiden dividend with our 2021 interims Above: Paddy O’Shea, Control Room Operator, Cloud Hill quarry BREEDONGROUP.COM 03 STRATEGIC REPORT OUR STRATEGY There are six pillars to our strategy, which together constitute the essential elements of Breedon’s investment case. 1. From this year we will report on A CLEAR PURPOSE AND THE RIGHT CULTURE our progress against these pillars. 6. 2. A GROWING, ROBUST WELL-UTILISED GOVERNANCE ASSET BASE OUR SIX PILLARS 5. 3. CONSERVATIVE COMMITMENT TO FINANCIAL SUSTAINABILITY MANAGEMENT AND SOCIAL RESPONSIBILITY 4. LONG-TERM GROWTH MARKETS 1. 2. A CLEAR PURPOSE AND ROBUST THE RIGHT CULTURE GOVERNANCE Our purpose is simple: to make a material We are already compliant with the Quoted difference to the lives of our colleagues, our Companies Alliance (QCA) Corporate customers and our communities, recognising Governance Code, having a strategy and that our products are essential to our economic business model which promotes long-term livelihood and to the development of healthy shareholder value and meets our shareholders’ living and working spaces for everyone. needs and expectations, supported by effective We acknowledge that no company can achieve risk management and broad stakeholder its purpose without the right culture, rooted in engagement activity. strong ethical values and behaviours, and a safe We have been steadily developing our Board working environment. Over the past year we have to ensure that it is well balanced, with the right engaged in a wide-ranging consultation with our mix of skills and experience, evaluated against colleagues in an effort to define and give clear clear and relevant objectives, with governance expression to that culture. It can be summarised structures that are fit for purpose and support in the four values which will guide us in everything sound decision-making. we do over the coming years: We have always sought to adhere to the • Keep it simple highest standards of corporate best practice, which in due course will naturally support a • Make it happen likely transition from the Alternative Investment • Strive to improve Market (AIM) to a full listing on the London Stock Exchange, at which point we will be • Show we care governed by the Financial Reporting Council’s Our priority is to ensure that these values (FRC) UK Corporate Governance Code, with become deeply embedded in our business, which we are already substantially compliant. that they are reflected in the working environment we provide for our colleagues and that they drive the right leadership behaviours in our management team. 04 BREEDON GROUP ANNUAL REPORT 2019 STRATEGIC REPORT STRATEGIC 3. 4. COMMITMENT TO LONG-TERM SUSTAINABILITY AND SOCIAL GROWTH MARKETS RESPONSIBILITY We will continue to focus on construction As an extractive industry we have an obligation materials markets that deliver profitable growth to ensure that our impact on the environment across the cycle. and society are minimised. Being a good We see numerous opportunities to expand corporate citizen is essential to protecting both our geographical footprint and our our licence to operate and is central to our product portfolio through organic investment purpose: to make a material difference to the and acquisitions. communities we serve. As we look over time to international markets From 2019 we have fully embraced our wider beyond Great Britain (GB) and Ireland, stakeholder and social responsibilities by we will focus only on those countries which targeting full compliance with the five pillars are characterised by robust legal systems, of the Global Cement and Concrete reliable planning regimes and benign local Association’s (GCCA) Sustainability Charter: cultures with minimal political risk. • Health and safety • Climate change and energy • Social responsibility • Environment and nature • Circular economy 5. 6. CONSERVATIVE FINANCIAL A GROWING, WELL-UTILISED MANAGEMENT ASSET BASE Breedon has always sought to balance growth The resources we use to produce our products and profitability. We prioritise the maintenance are scarce and valuable, so it is vital that we of a strong balance sheet with a responsible maintain a high level of mineral reserves and approach to Leverage and deploy our capital maximise the value of every tonne of material responsibly, allowing us to commit significant we quarry or manufacture. We achieve this organic investment to our business whilst through a disciplined approach to quarry continuing to pursue acquisitions to accelerate acquisition and development, coupled with a our strategic development. deep-rooted culture of self-help that ensures This conservative approach to financial our operations remain efficient and competitive management will enable us to continue irrespective of market conditions. pursuing capital growth for our shareholders,